Coinbase Sues the SEC For Its Decision on a Rule-Making Petition

Coinbase has taken legal action against the Securities and Exchange Commission, asking a court to compel the agency to respond to a petition that asked for clearer crypto regulation guidelines.

On Monday, the largest cryptocurrency exchange in the US filed a lawsuit with a federal appellate court in Philadelphia, asking the federal judge to force the SEC to respond to its pending rulemaking petition filed in July 2022.

The lawsuit alleged that “the SEC refuses to address Coinbase’s rulemaking petition” even as the agency aims to start enforcement proceedings against the exchange for listing allegedly unregistered securities.

In July last year, Coinbase submitted a petition asking the regulator to clarify which digital assets it considers to be securities.

“The U.S. does not currently have a functioning market in digital asset securities due to the lack of a clear and workable regulatory regime,” the exchange’s petition read.

Coinbase Asks the SEC to “Respond At All”

Coinbase Chief Legal Officer Paul Grewal wrote in an accompanying blog post that the exchange is not asking the court to tell the SEC how to respond.

“We are simply requesting that the Court order the SEC to respond at all, which they are legally obligated to do.”

Last month, Coinbase followed up its petition with a comment submitted to the agency asking for more clarity regarding staking after not receiving any answer from the SEC regarding the initial petition.

However, the SEC not only failed to respond but instead sent a “Wells notice” to Coinbase, threatening the crypto exchange with legal actions regarding some of its listed digital assets, its staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet.

“From the SEC’s public statements and enforcement activity in the crypto industry, it seems like the SEC has already made up its mind to deny our petition,” Grewal said.

“But they haven’t told the public yet. So the action Coinbase filed today simply asks the court to ask the SEC to share its decision.”

The lawsuit also comes at a time when the SEC has ramped up its enforcement actions against cryptocurrency companies following the catastrophic collapse of cryptocurrency exchange FTX last year.

Since the start of the year, the agency has taken action against crypto exchanges Bittrex and Gemini, crypto lender Genesis, and a number of individual actors accused of manipulating crypto assets, including crypto entrepreneur Justin Sun and disgraced Terraform Labs founder Do Kwon.

Crypto Firms Could Leave the US Amid Regulatory Uncertainty

Coinbase CEO Brian Armstrong has recently claimed that the exchange could leave the US if regulators don’t clarify their approach to the digital asset space.

“Anything is on the table, including relocating or whatever is necessary,” he said during the Innovate Finance Global Summit last week.

The exchange has also been pushing for global expansion in the wake of increased regulatory scrutiny in the US.

Just recently, Coinbase announced that it has secured a regulatory license in Bermuda, which allows the company to operate as a digital asset exchange in the territory.

In March, Armstrong also warned that a hostile regulatory approach by the SEC could drive the crypto industry outside of the United States.

The crypto boss said that almost all major financial hubs, including Singapore, Hong Kong, London, and most recently, the European Union, have introduced comprehensive crypto legislation, adding that the US should also follow suit if it doesn’t want to lag behind.

As reported, crypto exchange Bittrex has shut down US domestic operations due to the unstable regulatory environment.

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